Commercial Paper, insurance sector help NBFCs raise funds

Reported by: |Updated: October 1, 2018


NBFCs these days depend in CPs and funding from insurance companies, says a cover story in Banking Frontiers. The story has the views of Ramesh Iyer, vice chairman & MD at Mahindra Finance, who says CPs and inter corporate deposits are more commonly used as sources of short-term funding. Apart from these, there are also lines available with banks as part of consortium to avail working capital facilities. “We maintain a strong ALM policy to maintain liquidity. Approximately 10-15% of our overall borrowings is raised through short term source,” says Iyer.

He adds that the company in general uses all borrowing sources so as to benefit from both a healthy mix of instruments as well as benefitting from its pricing. However, these usually do not exceed 2% of the overall borrowings.

For Shriram City Union Finance, CPs make up around 14% of its liabilities. However, debentures do not make the fit for the company as a short-term funding mode because they are issued for tenors greater than 12 months. As of June 2018, the company does not have any inter-corporate deposits in our resource mix.

Iyer maintains that insurance companies and provident/ pension funds have the ability to invest for longer term compared to other market participants. “Insurance sector is one of market participants in NCD placements and in the last few years their participation levels have increased, and these comprised ~ 15% of the total borrowings of Mahindra Finance. “We raise funds from such institutions as they are competitive considering their long term nature, which strengthens ALM,” he adds.

Shriram City Union Finance’s borrowings from the insurance sector are quite insignificant at present, being less than 1% of the total liabilities.

– Manoj Agrawal, Group Editor, [email protected]